Powering the Future: Navigating the New Era of Data Centre Development
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September 11, 2025
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This publication is jointly authored by the lawyers of Jones Day and by FTI Consulting.
The Situation
The rapid advancement and adoption of new technologies, including artificial intelligence, (“AI”), is fundamentally transforming the data centre landscape. The demand for high-performance data centres capable of supporting complex processing and storage tasks is surging.1
The Result
In response to rapidly evolving technologies and the capital-intensive nature of data centre projects, procurement methodologies are becoming increasingly complex as developers grapple with a bespoke risk profile and seek to manage active risks around supply chain management, design changes and available levels of power.
Looking Ahead
Strategic procurement and robust risk management will be essential for procuring a successful data centre project. What are some of the key trends and issues impacting the procurement of data centres?
Getting Online
Modern data centers require significantly more power per rack (power density) than legacy facilities due to the intense computational workload of modern applications.2 Securing an abundant and reliable power source is therefore a critical requirement. Where a supply is not available through the existing infrastructure due to geography or capacity in the existing grid, many developers have turned to self-generation as a solution, using technologies such as solar photovoltaic (“PV”) systems, gas turbines, wind turbines and batteries.
Where it is necessary to construct a new substation to guarantee power supply to the data centre, these works will typically be undertaken by a specialist contractor, often pursuant to a building contract separate to the main agreement(s) to construct the data centre. Interface risk, access and sequencing of these works must all be considered in the context of the broader development. In the future, small modular reactors may hold the key for creating localised power sources which can keep up with the power appetite of a modern data centre.
From a commercial-power standpoint, operators are increasingly deploying a multilayered strategy that combines on-site renewable generation, sophisticated load-management and third-party offtake structures to mitigate energy price volatility and to monetise excess capacity. Self-generation ─ typically via rooftop or adjacent solar, behind-the-meter wind or waste-heat-to-power turbines ─ allows the data centre owner to displace grid electricity and, where export is permitted, to earn embedded benefits and imbalance-market revenues. Coupled with battery energy storage systems, such assets facilitate peak-shaving and frequency-response participation, enabling operators to arbitrage time-of-use tariffs and secure additional revenue through ancillary-service markets. Where capital constraints or site limitations preclude full self-generation, corporates are increasingly entering into physical sleeved power purchase agreements, synthetic or “virtual” PPAs and hedge-wrapped “proxy revenue swaps” with independent power producers.
Cooling Requirements and Equipment Obsolescence
The rapid pace of computer chip development is the most prominent example of how equipment development can outpace the relatively short data centre build times of 18 months to 3 years, rendering designs that assume particular specifications obsolete by the point of practical completion.3 Developers can mitigate their risk through business models that assume tenant provision of computing equipment, procurement timeline management and modular design.
The high and increasing power density of a modern data centre also generates knock-on impacts, with significantly more heat and advanced cooling solutions required to maintain efficiency and prevent overheating. Accordingly, data centres commonly utilise advanced liquid cooling systems, such as direct-to-chip cooling or immersion cooling where the entire server is immersed and cooled in a special nonconductive liquid, to efficiently remove heat from densely packed servers.4 To operate such systems requires more complex power management and monitoring systems to ensure optimal energy usage and to minimise waste. This poses significant development challenges in terms of design, commissioning and operation.
Design Changes
Data centres incorporate highly specialised designs with numerous interfaces and specific operational requirements. As a project evolves, it is common that a design changes or additional functionality may be added. Given the cutting-edge nature of the technologies now being implemented, it is also not uncommon that errors in the design arise during construction. This in turn may require redesign, rework or additional approvals. The provisions of development contracts relating to changes and variations should be carefully negotiated to ensure that such changes are anticipated and 'built in' to the contract terms to avoid disputes later down the line. This is a particular area of concern for colocation facilities designed without significant end-user input and less so for “build-to-suit” projects where designs are typically agreed up front or in continuous consultation with the intended hyperscaler tenant.
Supply Chain Issues
Data centres require specific materials and plant in relation to the structure, site-wide infrastructure and internal fit-out. The procurement of specialist technologies, often sourced internationally and in high demand, places an even greater burden on the supply chain. Skilled labour, particularly in relation to the installation of electrical, heating/ventilation and IT systems, is equally a cause of supply chain issues. Given the boom in data centre construction, the risk of shortages in the supply chain as well as global disruption is distinct ─ with the potential to impact on construction programmes if suppliers, contractors and subcontractors do not meet deadlines. To avoid programme delays, supply chain considerations should be mapped out well in advance and programmed into development timetables.
Modular Construction
Incorporating modular construction methods and the use of software to control and manage the processing, networking and storage can ensure data centres are equipped to quickly adapt to changing requirements and integrate new technologies as they emerge. Prefabricated modules come with their own set of unique considerations which developers must consider and interface with the wider development must be considered whilst risks around ensuring modules fit and integrate into the works can often be mitigated where modular providers offer a turnkey solution. Financers have typically proceeded with caution where large aspects of a project are procured using modular due to the risks associated with large advanced payments and offsite materials, so early engagement with financers and other key stakeholders will be essential for successfully integrating modular elements into a development.
Vertical Construction
The construction of multi-storey data centres is becoming increasingly common in areas with limited land availability and/or high land values.5 Despite the greater upfront costs of construction, multi-storey data centres can be an attractive option to developers and operators by providing better "watts per acre" and potentially reducing land acquisition costs later on. High-rise buildings attract their own procurement challenges including rights of light and environmental issues and specialised engineering and construction techniques are required to ensure the structural integrity and accommodate heavy plant and equipment.
Parcelization
Spreading the significant capital costs of data centre development is a primary driver for equity and debt funders of data centre construction.6 Parcelization of a data centre campus into separate, largely self-sufficient buildings can be an effective strategy to achieve this goal. For developers, this can mean developing separate sections of a site only when they have been leased, obtaining different sources of debt capital for different parcels and/or securing income streams to fund subsequent parcel development. For debt providers, they can reduce the size of their overall commitment to a particular campus or secure more control over a campus-wide financing through allocated loan amounts and parcel-level covenants and reporting.
Regulatory Frameworks
Regulatory conditions across Europe are evolving rapidly and exert a mixed influence on new data centre build-outs. For example, at EU level, the recast Energy Efficiency Directive (2023/1791/EU) now imposes mandatory annual reporting of energy and water metrics for data centres above 500 kW IT load and regulation in the pipeline is expected to prescribe best-available-technology benchmarks that could require costly retrofits. In the United Kingdom, the incoming UK Sustainability Disclosure Requirements1 and the EU Corporate Sustainability Reporting Directive (2022/2464/EU) will tighten transparency obligations but may ultimately expedite investment by favouring operators with demonstrable low-carbon footprints. The net effect is a regulatory landscape that simultaneously constrains expansion in saturated grids yet provides new statutory levers and market incentives designed to speed the deployment of energy-efficient, renewably powered data-centre capacity across the region.
Key Takeaways
- Available power supply remains the most critical constraint facing data centre development projects.
- There is no industry standard for data centre procurement and the "best" method of procurement will be developed based on the specific project at hand, the developer’s appetite for different types of risk and regulatory requirements depending on jurisdiction.
- Persistent supply-chain constraints continue to threaten programme certainty. Early supply-chain mapping is essential to mitigate such risks.
- Escalating IT-load densities and rapid chip iterations drive bespoke designs, advanced liquid-cooling regimes and a heightened risk of mid-build obsolescence. Development contracts should build in flexible provisions to deal with such challenges while preserving price, programme and employer protections.
- Parcelization of a data centre campus into separate buildings can allow developers to spread the capital cost of data centre development and allows debt providers to reduce the size of their overall commitment.
Authors: Manoj Bahl and John Crowley
Footnotes:
1: “UK Sustainability Reporting Standards,” GOV.UK (September 19, 2024)
2: “AI to drive 165% increase in data center power demand by 2030,” Goldman Sachs (February 4, 2024)
3: “Power Requirements for AI Data Centers: What You Need to Know,” 174 Power Global (June 12, 2025)
4: Ben Craske, “Chasing Efficiency: The Data Centre’s Role in the AI Era,” DataCentre Magazine (September 1, 2025)
5: “The future of data centers demands advanced cooling,” Flex (November 1, 2024)
6: Jamie Cameron, “Maximising space with multi-storey data centres,” Cundall (February 21, 2025)
7: Alessandro Ravagnolo, “Data-centre yieldcos are becoming a valuable route to funding in a capex-hungry market,” Analysys Mason (December 24, 2025)
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Published
September 11, 2025
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Senior Managing Director, Head of UK and Ireland Construction, Projects & Assets